Garrett Official Statement on Failed Bailout Bill in the House

Rep. Scott Garrett (R-NJ) released an official statement today on Bailout Bill vote:

“Congress has been faced with making a grave decision for the future of our country and the welfare of American families. Citizens across the country are anxious for the current economic crisis to end, however I had serious doubts about the ability of the Bailout bill to accomplish that goal. What I am certain of, however, is that this bill would have set a precedent for government intervention in the marketplace, added to the ever increasing national deficit, and increased the chances that inflationary pressures would impose what is surely the cruelest tax on families.

“As a result of these concerns, I have voted against the Economic Stabilization Act of 2008. I have instead chosen to join with over 30 of my colleagues in cosponsoring the Economic Rescue Alternative Plan introduced on the floor today.

“Prior to this bill coming to the floor for a vote today, I was very outspoken about the need for in-depth discussion and hearings among Members of Congress to determine the best plan of action for the American taxpayer. It is my hope that we can now progress forward in productive bipartisan negotiations to formulate a better piece of legislation.”

i feel sorry for all the ridgewood hedge fund managers and their risky leveredged investments.

but, this is risky business (i.e; gambling) and scott garret did the right thing.

one of the few places where i have seen clearly described what this bailout is really about (it’s not the mortgages, but all the highly leveraged synthetic derivatives piled on them that the hedge funds and investment banks bought and traded) is this article in Time:

RE: “The fact is that Democrats voted for the bill by a healthy majority (141 votes for, 94 against).“

40% opposition from your own party does not consititue a “healty majority”.

Pelosi is no leader and frankly she is a joke.

If she felt that there was a financial crisis and that immediate action was critical and this bill was the best solution given the situation, then why couldn’t she rally her troops to vote on this bill and have the Democrats pass it unilatterally?

Why?

Because she is no leader.Her fellow Democrats have no respect for her leadership.

Because she wants cover from the Republicans so that when her pet bill does not solve the financial crisis, she won’t have to take the blame.

Congressman Garrett, it appears to this constituent that you are on to something.

For the time being at least, I am inclined to trust you to continue pursuing what you believe to be the proper course of action in resolving this crisis.

I was unaware of how bad the situation had gotten in terms of members of Congress shanghaiing immense GSE’s like Fannie Mae and Freddie Mac. Please do what you can to prevent the bad actors who caused this crisis from pulling the wool over the eyes of the electorate.

In my opinion, the last thing we need in this situation is another ‘bipartisan’ commission like the 9/11 commission. History has shown that the overarching purpose of that charade was to blunt the humiliation and pain that an appropriate amount of public exposure would have inflicted on the backsides of blameworthy politicos.

Finally, I believe McCain/Palin should hitch their wagon to your efforts, if for no other reason than to maintain their credibility as mavericks. And of the two of them (McCain being perhaps too polite to call his Senate colleagues out by name), I would expect the straightest talk to come from Governor Palin, given her demonstrated appetite for overturning the tables of temple-dwelling moneychangers.

I have heard that the agreement between Democratic and Republican leadership in the House of Representatives was for each party to deliver a majority of votes from their caucus. This way, the bill gets passed, and both parties are shielded from the wrath of the electorate come November. Hence Barney Frank’s derisive post-vote comments about the Republicans being too week to keep their caucus in line.

The way I understand the agreement between Pelosi and the Republican leadership in the House, the only members who were to be permitted to vote “no” on the $700B bailout plan were those who were facing a tough fight for re-election.

So there you have it. If you occupy a safe seat, you are obliged to vote the pro-Government line. Only if your seat is above a certain temperature are you allowed to vote your conscience, listen/respond to the expressed concerns of your constituents, or both.

If Pelosi is an in effective leder and couldn’t deliver ” all ” of her party, then what does that say about the republican ledership. The fact is that the majority had concerns and it didn’t pass. Time for a new bill that considers a broader range of issues.

The great thing about this country is that it’s a democracy. However, sometimes it’s that democracy that is a problem. Many of the “no” votes came from politicians who were affraid that a “yes” vote would cause them to lose their seat at the next election.

The unfortunate thing is, that the majority of Americans simply do not understand the issue, do not understand how it came to be, and do not understand the consequences if this bill doesn’t get passed. The media has done a terrible job of explaining it. Even it it could be explained, I’m still not sure that the average person would get it.

Congressman Garrett is my representative? This legislation, with all its faults would have made it possible for some of us to find work after the initial shock and layoffs occur. This isn’t about ideology, it’s about dollars and sense for NJ. I hope he will be more aware of New Jersey’s fiscal reliance and proximity to the NY financial markets when he has to vote to extend unemployment benefits to the people of North Jersey he just helped get unemployed. The people he represents are the ones most likely to lose jobs due to the seizing of the markets this bill was meant to try and minimize.

The market gained BACK 500 of the 770 it lost the day before ($1.4 trillion of evaporated market cap…twice the maximum investment in TARP), on the expectation that TARP will pass this week. That leaves us 270 in the hole for two days and down more than in 2002 YTD…still rooting for Scott??? If it does not pass, the 770 loss on Monday will be pocket change.

TARP is essential to remove the trouble assets from the balance sheets of US financial institutions. That is the only way that our banks can begin to free up credit for consumers, businesses and other banks. By the way, there are $billions in private capital waiting to buy some of these assets, once the government sets the floor. The vast majority of these assets that would be purchased and held by the government or private investors will see returns of 30-50% or more, depending on the holding period. If TARP buys $350billion of assets, at 30% return that would mean that the taxpayers get all that money back PLUS $105billion to reduce taxes or reduce our spending deficit. That means the benefits go directly to the taxpayers, aside for getting our credit markets functioning properly again.

When you understand the problem, how TARP addresses it and the potentially large returns to taxpayers, this plan makes perfect sense. Those opposing it, do not appear to understand the nature of the crisis or do not understand the elegant simplicity and efficacy of the plan.

Those opposing it, do not appear to understand the nature of the crisis or do not understand the elegant simplicity and efficacy of the plan….snore ….if this was done 2 years ago when it should have been done you could have had a point …and extra couple of days to iron things out seems like no big deal considering it took congress and there political friends 20 years to screw this whole thing up ….

The following is a copy of an email I have sent to my elected representatives in the Congress.

Members of Congress:

It is with the sense of great historical urgency that I contact you regarding this issue. I believe each of you may be asked to vote on the not yet determined final version of this measure within the next few days.

I urge that you vote AGAINST implementation of this plan as it is presented to you. The reasoning for this is as follows:

Bear Stearns, Lehman Brothers, American International Group, Merrill Lynch, Washington Mutual, Fannie Mae, Freddie Mac, and Wachovia all have one thing in common. They failed the confidence test and went into or approached bankruptcy before Secretary Paulsen presented his original plan to the Congress.

The problem type of investment that cannot be valued is the over-the-counter derivative contract. They are not mortgages. They are collateralized mortgage securities. Who created this type of investment? The entities asking the American taxpayer to assume all these unvalued investments. Who holds these type contracts? Not Main Street American citizens. They are held by banks, investment banks and hedge funds.

If you accept Secretary Paulsen’s plan, you will effectively be allowing the American taxpayer to assume these contracts from the traders who executed the bad trades. In past American history, we did not bail out the steel industry. We did not bail out the textile industry. If you do allow this, you will be opening the door to permit the bailout of the auto industry, followed, perhaps, by the airline industry. We will commence the advance towards full scale socialism. Karl Marx will be smiling broadly from his grave.

The holders of these derivative contracts can sell these instruments. The sellers just don’t like the price at which they currently are at market. I feel the same way about my home. Will you make me whole? I think not. Nor would I think of burdening my fellow citizen with that responsibility. Let the holders generate the capital privately and sell the contracts at current market.

The spin, both media generated and financial industry generated, is so vicious, disingenuous and dishonest. If you approve this plan, you effectively tell the world; the investment business is a fixed deck. The same people who have told us for four years that the economy is sound are now telling us how they are capable of saving the economy. Such integrity. Should you pass this measure, the traders will take the taxpayer money and buy back investments at low prices and leave the taxpayer “high and dry”. Such a deal.

In the period, 2002 to 2008, the value of the US Dollar ($) has gone from $1.20 to $.79. The investment community’s activities have eroded the value of the US Dollar. If you pass this measure, it will lead to a further erosion of the value of the US Dollar.

As the Nation goes forward, do we want a clean market or a fraudulent one? Passage of this measure will exacerbate further economic decline.

What about the freezing of the international credit markets? This is an important consideration. Solution: Inject the capital ($500 Billion) into the remaining solvent financial institutions, the ones with sound balance sheets. This will allow credit markets to continue to function.

Safety of citizens’ investments? Increase the FDIC limits to $250k or $500k, to relieve the fear and potential of panic on the part of our fellow citizens.

The goal is to protect the integrity of the international markets and our Nation, not the future of investment bankers who happened to exercise considerable bad judgment over an extended period of time.

Thank you for your willingness to listen. Remember FDR’s admonition. We have nothing to fear but fear itself. May God grant you the courage and the grace to vote correctly in the days ahead.

I am in general – opposed to government interference in the markets. Having said that – I do believe a government rescue is appropriate here – for one reason only. The government caused this crisis in the first place by insisting that Fannie Mae and Freddie Mac lower their credit standards for home loans. If you want to see an amazingly accurate prediction of this crisis – and understand what caused it – google "NY Times article Fannie Mae September 30, 1999". This article details the lower credit standards then being implemented by Fannie Mae – with a prediction from an industry expert that we were setting ourselves up for the next "S&L style bailout" whenever we had an economic downturn. This is EXACTLY what has happened!! Fannie Mae dropped down payment requirements during the mid-90's, then with this change in credit standards – they dumped a huge number of new buyers (with scarce resources) into the home buying market. This drove prices up for everyone else – and when we hit a housing downturn – these people were the first to walk away from their homes – driving home values back down for those who were qualified buyers & already in their homes � forcing some of them into foreclosure. These poor credit buyers themselves are not necessarily to blame – but those who lowered lending standards put every qualified home buyer at risk – and the result is the crisis we are now facing. Bush did see this coming, and tried to enact reforms starting in 2003 – but he did not push nearly hard enough. Barney Frank and others in Congress used Washington gridlock to block attempts to reform Fannie Mae and Freddie Mac before it was too late. How does this quote sound under the present circumstances?: ''These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' You can find that quote in a September 11, 2003 NY Times article – just google the date and "NY Times Fannie Mae".

ln a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt from stockholders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

“Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk which may not pose any difficulties during flush economic times. But the government subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

“From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison, a resident fellow at the American Enterprise Institute. “If they fail. the government will have to step up and ,bail them out the way it stepped up and bailed out the thrift industry.”

Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify, for a mortgage. But they add that the move is intended in part to increase the number of minority and low income homeowners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 57.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

It is now filled with tons of pork.At least it is good for the wooden arrow-head makers and other special interests who will be getting tax breaks, but how that will help the credit crunch, I do not know.

(And YES, there is a specific tax break in the bill for manufacturers of wooden arrow heads for children’s toys among other ridiculous pork.)

The top 3 recipients of Fannie Mae and Freddie Mac campaign contributions are democrats. Christopher Dodd – $165,400, Barack Obama – $126,349, and John Kerry – $111,000. Mind you that Barack Obama has only been in Congress for 3.5 years, where as the others have been in Congress for the entire 18.5 years of records kept.